t15484b_10qsb.htm

Intangible assets consist of a patent that was purchased in connection with the Acquisition Transaction. The patent is being amortized using the straight line method over its estimated useful life of ten years. Amortization expense for the nine and three months ended September 30, 2007 amounted to $70,000 and $ 30,000, respectively. Amortization expense for each of the following fiscal years is expected to be as follows: 2007 - $100,000, 2008 through 2011 - $120,000 per year and thereafter - $620,000.

Research and Development

Costs incurred in connection with the research and development of the Company's products are expensed as incurred.

Marketing and Advertising

Marketing and advertising costs are expensed as incurred.

Severance pay

The Company’s subsidiary liability for severance pay is calculated pursuant to Israeli severance pay law based on the most recent salary of the employees multiplied by the number of years of employment as of balance sheet date. Employees are entitled to one month’s salary for each year of employment, or a portion thereof (on a pro-rata basis). Such liability in Israel is fully provided by monthly deposits in accordance with insurance policies and by an accrual. The deposited funds include profits accumulated through June 30, 2007. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israeli severance pay law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies, and includes immaterial profits.

Income Taxes

Income taxes are accounted for under the liability method. Under this method, deferred tax assets and liabilities are recorded based on the temporary differences between the financial statement and the tax bases of assets and liabilities and for operating loss carryforwards measured using the enacted tax rates in effect for the year in which the differences are expected to reverse. The Company periodically evaluates the realizability of its net deferred tax assets and records a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) 123R Share-Based Payment (SFAS 123R). SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the reward—known as the requisite service period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. The grant-date fair value of employee share options and similar instruments are estimated using option-pricing models adjusted for the unique characteristics of those instruments.

Equity instruments issued to non-employees are recorded at their fair values as determined in accordance with SFAS No. 123 and Emerging Issues Task Force (EITF) 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods and Services”, and are periodically revalued as the stock options vest and are recognized as expense over the related service period.

Earning (loss) per share

Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share give effect to dilutive convertible securities, options, warrants and other potential common stock outstanding during the period, only in periods in which such effect is dilutive. The following securities (at weighted average outstanding) have been excluded from the calculation of net loss per share, as their effect would be antidilutive:

	Shares of Common Stock
	Issuable upon Conversion/Exercise
	of as
	September 30
	2007		2006
Warrants		20,211,000		---
Convertible notes		2,028,557		---
Stock options		2,750,000		---

Recently issued accounting pronouncements

In February 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115". SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. This Statement applies to all entities, including not-for- profit organizations. SFAS No. 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. The Company is currently evaluating the impact of SFAS No. 159 on its consolidated financial statements.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements." SAB 108 provides guidance on the consideration of effects of the prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. The SEC staff believes registrants must quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108 was effective for the first annual period ending after November 15, 2006 with early application encouraged. The Company adopted the provisions of SAB 108 on December 31, 2006 and there was no impact of adoption to its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" which applies under most other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 provides a common definition of fair value as the price that would be received to sell or paid to transfer a liability in a transaction between market participants. The new standard also provides guidance on the methods used to measure fair value and requires expanded disclosures related to fair value measurements. SFAF No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company does not expect this guidance to have a material impact on the financial statements.

Management does not believe that any recent issued, but not yet effective, accounting standards if currently adopted, would have a material affect on the accompanying financial statements.

NOTE 3 - GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.

At September 30, 2007, the Company had not achieved profitable operations, has accumulated losses of $9,427,456 (since its inception), has a working capital deficiency of $1,495,244 and expects to incur further losses in the development of its business. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from the ordinary course of its business operations when they come due. There can be no assurance the Company will be able to generate profitable operations and additional funding being available.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that management will be successful in implementing a business plan or that the successful implementation of a business plan will actually improve the Company's operating results.

The Company’s current cash resources are not sufficient to support any unforeseen contingencies that may arise or permit the Company to take advantage of business opportunities that may arise.

The Company has been funding its operating from February to September 2007 from the net proceeds of approximately $2.675 million from the private placement of its short-term convertible debentures which are to come due November 29, 2007. In October 2007, the Company raised net proceeds of $225,000 from the private placement of its 90 day promissory notes.

NOTE 4 - ACQUISITION

On July 25, 2006, IDO Inc., IDO Ltd. and the IDO Selling Shareholders entered into a Securities Purchase Agreement pursuant to which IDO Inc. agreed to purchase all of the issued and outstanding share capital of IDO Ltd. On March 8, 2007, the Acquisition Transaction was completed for total consideration of $1,000,000. Acquisition costs of $25,695 were incurred by IDO Inc. to complete the transaction. Following the consummation of the transaction, IDO Ltd. became a wholly-owned subsidiary of IDO Inc. and IDO Inc. adopted the business of IDO Ltd.

The Acquisition Transaction was accounted for as a purchase. The following table summarizes the estimated aggregated fair values of the assets acquired and the liabilities assumed.

Cash	$	19,974
Inventories		192,419
Other current assets		12,844
Patents		1,200,000
Property and equipment		17,182
Goodwill		755,002
Accounts payable and accrued expenses		(77,672	)
Amounts due from related parties		(943,251	)
Accrued severance pay		(150,803	)
	$	1,025,695

Prior to the Acquisition Transaction, IDO Ltd. received loans for working capital purposes from third parties, including stockholders of IDO Inc. At the date of the Acquisition Transaction, IDO Ltd. owed these parties the aggregate amount of $959,361. In connection with the Acquisition Transaction, these third parties assigned their rights to the loans to IDO Inc. As such, the loan balances were offset against goodwill.

In addition, prior to the Acquisition Transaction, IDO Ltd. received working capital loans from certain non-management related stockholders of IDO Inc. Following the consummation of the Acquisition Transaction, the outstanding principal amount and accrued interest were repaid from the proceeds of the private placement of Company's securities referred to in Note 5. The following table presents unaudited pro forma revenue, net loss and loss per share giving effect to the Acquisition Transaction as if it had been completed at the beginning of each period presented:

	Nine Months Ended						Three Months Ended
	September 30
	2007			2006			2007			2006

Revenue	$	19,985		$	27,511		$	-		$	19,461

Net loss	$	(6,810,118	)	$	(1,294,870	)	$	(3,723,042	)	$	(196,610	)

Net loss per share,
basic and diluted	$	(0.21	)	$	(0.08	)	$	(0.11	)	$	(0.00	)

NOTE 5 - PRIVATE PLACEMENT OF DEBT SECURITIES

On February 28, 2007 and March 29, 2007, the Company raised gross proceeds of $1,050,000 and $1,250,000, respectively, from the private placement of its 120 day Secured Convertible Notes (the “Notes”). The Notes were issued pursuant to a Subscription Agreement, dated February 28, 2007 (the "Subscription Agreement”), between the Company and certain investors ("Investors") pursuant to which the Company was able to raise up to $3 million from the placement of its promissory notes. On April 18, 2007, the Company raised an additional $700,000 under the Subscription Agreement. In connection with the issuance of the Notes, the Company issued warrants (the “Investor Warrants”) to purchase up to 9,720,000 shares (post split) of the Company’s common stock, par value $0.001 (the “Common Stock”) at a per share exercise price of $1.67. The warrants are exercisable through the fifth anniversary of the effective date of a resale registration statement relating to the Common Stock underlying the securities sold. Under the terms of the Subscription Agreement, the Investors also received 1,800,000 restricted shares (post split) (the “Incentive Shares”) of the Company’s Common Stock.

Pursuant to the Subscription Agreement, the Company issued Notes to the Investors in the aggregate principal amount of $3,240,000, which reflects an original issue discount on the principal amount of the loan of 8% with respect to the 120 day loan period and an effective annual interest rate of 23%. Each of the Notes has an original term of 120 days and is convertible into shares of the Company’s Common Stock at the holder’s option at any time at an initial conversion price of $1.67 per share, subject to adjustment in the event of certain capital adjustments or similar transactions, such as a stock split or merger and as further described below; provided that , following the first anniversary of issuance, the conversion price will be the lesser of (i) $1.67 or (ii) seventy-five percent (75%) of the average of the three highest closing bid prices of the Common Stock as reported by Bloomberg L.P. for the stock’s principal trading market for the five trading days preceding but not including the date of conversion. Under certain conditions, the Company, upon request of the Note holders, is required to redeem the Notes by payment of 120% of their stated value..

For financial reporting purposes, the Company recorded a discount of $2,042,361 to reflect the value of the warrants and shares issued and in accordance with EITF No. 00-27, an additional discount of $448,263 to reflect the beneficial conversion feature of the Notes. The discounts are being amortized to the date of maturity unless converted earlier.

A Note in the aggregate principal amount of $1,134,000 was originally scheduled to mature on June 28, 2007. In July 2007, the Company and the holder of such Note agreed to extend to August 31, 2007 the maturity date of this Note. In consideration of the extension, the Company issued to the holder warrants to purchase an additional 1,701,000 shares (post split) of the Company’s Common Stock on terms and conditions that are identical to the Investor Warrants and also issued 315,000 Incentive Shares (post split). For financial reporting purposes, the Company recorded a discount of $897,902 to reflect the value of the warrants and shares .The discount is being amortized to the date of maturity unless converted earlier.

On July 26, 2007, the maturity date for Notes in the aggregate principal amount of $1,350,000, which were originally scheduled to mature on July 29, 2007, have also been extended to August 31, 2007. In consideration of this extension, the Company issued to these investors warrants to purchase an additional 1,217,249 shares (post split) of the Company’s Common Stock on terms and conditions that are identical to the Investor Warrants and also issued 218,750 Incentive Shares (post split). For financial reporting purposes, the Company recorded a discount of $958,452 to reflect the value of the warrants and shares .The discount is being amortized to the date of maturity unless converted earlier.

As of August 16, 2007, the maturity date for Notes in the aggregate principal amount of $3,323,222, which were originally scheduled to mature on August 31, 2007, have also been extended to November 29, 2007. In consideration of this extension, the Company issued to these investors warrants to purchase an additional 7,573,500 shares (post split) of the Company’s Common Stock on terms and conditions that are identical to the Investor Warrants and also issued 1,402,500 Incentive Shares (post split). For financial reporting purposes, the Company recorded a discount of $2,832,514 to reflect the value of the warrants and shares . The discount si being amortized to the date of maturity unless converted earlier.

Interest incurred on the Notes amounted to $380,969 and $195,198 for the nine and three months ended September 30, 2007, respectively

Amortization of debt discount and beneficial conversion for the nine and three months ended September 30, 2007 amounted to $5,353,731 and $3,383,086.

To secure Company’s obligations under the Notes and the Subscription Agreement, the Company granted to the Investors a security interest in substantially all of its assets, including without limitation, its intellectual property, under the terms and conditions of a Security Interest Agreement dated as of the date of the Notes. The security interest terminates upon payment or satisfaction of all of Company’s obligations under the Note.

NOTE 6 - CAPITAL TRANSACTIONS

On March 9, 2007, the Company’s Board of Directors and the majority of Company’s stockholders authorized:

	·	An increase in the number of authorized shares of the Company’s Common Stock from 25,000,000 to 50,0000 shares; and

	·	the designation of 20 million shares of the Company’s authorized capital stock as preferred stock with the Board of Directors authorized to fix the number of shares of any series of preferred stock and to determine the designation of any such series, including the authority to determine the designation of any such series, including the authority to determine the rights, preferences, privileges and restrictions on any such series of preferred stock.

In conjunction with the above, the Board of Directors of the Company approved a three-for-one forward stock split. The increase in the number of authorized shares of Common Stock and designation of preferred stock referred to above became effective in June 2007. The forward stock split was effected in June 2007.

NOTE 7 - Stock Option Grants

In June and September 2007, the Company’s board of directors approved grants of stock options to employees and consultants to purchase an aggregate of 2.75 million shares of its common stock with exercise prices ranging from $.17 to $7.50. The options have terms ranging from five to seven years and vest at various times over a two year period. The weighted average per share fair value of options granted during the nine months ended September 30, 2007 was $2.06. The fair value of the options granted was estimated using the Black-Scholes option-pricing model under the following assumptions; volatility - 134.97%, expected life of options - five to seven years, risk free interest rate - 4.20% to 5.03% and a dividend yield of 0%.

The Company recognized stock compensation expense of $2,567,829 and $1,111,752 for the nine and three months ended September 30, 2007.

NOTE 8 - RELATED PARTY TRANSACTIONS

The Company has received working capital loans from certain non-management affiliated stockholders of IDO Inc. (see Note 4). Amounts owed on the loans aggregated to $44,826 at September 30, 2007 and $26,896 at December 31, 2006. Interest incurred on the loans amounted to $33,538 and $18,534 for the nine and three months ended September 30, 2007, respectively.

One of the individual investors who advanced the Company $200,000 in connection with the private placement of the Notes referred to in Note 5 above is the spouse of Ms. Irit Reiner, one of the Company’s non-employee directors.

NOTE 9 - COMMITMENTS

EMPLOYMENT AGREEMENTS

On June 20, 2007, the Board of Directors of the Company appointed Michael Goldberg, the Company’s acting Chief Executive Officer since July 2006, to the position of President. Mr. Goldberg’s appointment became effective on July 2, 2007. In connection with his appointment as President, the Company and Mr. Goldberg entered into an employment agreement pursuant to which Mr. Goldberg will be paid an annual salary of $198,000, payable monthly. Mr. Goldberg agreed to defer $4,500 of his monthly gross salary until such time as the Company shall have concluded permanent financing. The employment agreement has an initial term of one year; thereafter, the employment agreement provides that it is to be renewed automatically for additional one year periods unless either party shall advise the other 90 days before expiration of the initial (or a renewal term) of its intention to not renew the agreement beyond its then scheduled expiration date. Mr. Goldberg can terminate the employment agreement and the relationship thereunder at any time upon 60 days’ notice. If during the initial term the Company were to terminate the agreement for any reason other than “Just Cause” (as defined the employment agreement), then the Company is to pay to Mr. Goldberg the salary then payable under the agreement through the scheduled expiration of the initial term; if such termination for any reason other than “Just Cause” were to take place during a renewal period, then the Company is to pay to Mr. Goldberg an amount equal to three months’ salary. Under the agreement, Mr. Goldberg will be awarded options to purchase 1,200,000 shares (post split) of the Company’s common stock, of which options for 525,000 shares, at a per share purchase price of $0.17, shall be fully vested at the time of grant and options for the remaining shares are to vest in equal installments of 84,375 shares at the end of each calendar quarter, beginning September 30, 2007, at per share exercise prices ranging between $0.25 and $1.25.

On July 1, 2007, Mr. Henry Shabat was appointed Chief Operating Officer of IDO Ltd. In connection with Mr. Shabat’s retention as IDO Ltd.’s Chief Operating Officer, on July 1, 2007, IDO Ltd. and Henry Shabat Ltd., a company owned by Mr. Henry Shabat, entered into a Management Agreement pursuant to which Mr. Shabat is to serve as IDO Ltd.’s Chief Operating Officer. Under the management agreement, Mr. Shabat is to be paid a monthly fee of $6,000. The management agreement has an initial term of one year; thereafter, the management agreement provides that it is to be renewed automatically for additional one year periods unless either party shall advise the other 90 days before expiration of the initial (or a renewal term) of its intention to not renew the agreement beyond its then scheduled expiration date. Under the agreement, Mr. Shabat will be awarded options to purchase 240,000 shares (post split) of the Company’s common stock, which are scheduled to vest in equal installments of 30,000 shares at the end of each 90 day period following the execution of the management agreement. The per share exercise price range between $0.17 and $1.67 (post split level).

CONSULTING AGREEMENTS

On June 29, 2007, Mr. Jorge Wolf was appointed as Manager of Business Development for each of the Company and IDO Ltd. In that capacity, it is intended that Mr. Wolf will be assuming day-to-day management with respect to business development activities, subject to the oversight of Mr. Goldberg, as President. In connection with his appointment, each of the Company and IDO Ltd. entered into a consultancy agreement with Mr. Jorge Wolf pursuant to which Mr. Wolf is to be paid a monthly fee of $5,286 under each agreement. Each of the consulting agreements has an initial term of two years; thereafter, each agreement provides that it is to be renewed automatically for successive two year periods unless either party shall advise the other 90 days before expiration of the initial (or a renewal term) of its intention to not renew the agreement beyond its then scheduled expiration date. The agreement further provides that the Company may, after the first anniversary of retention, terminate the consulting relationship for any reason upon 90 days’ notice. Under the consulting agreement with the Company, Mr. Wolf will be awarded options to purchase 1,200,000 shares (post split) of the Company’s common stock, which are scheduled to vest in equal installments of 150,000 shares at the end of each 90 day period following the execution of the consulting agreement. The per share exercise price range between $0.17 and $1.67 (post split level).

NOTE 10 - SUBSEQUENT EVENT

On October 11, 2007, the Company raised gross proceeds of $250,000 from the private placement (the “Private Placement”) to institutional investors (the “Investors”) of its 90 day Promissory Notes (collectively, the “Notes”, each a “Note”). The loan was advanced pursuant to a Subscription Agreement, dated as of October 11, 2007 (the “Subscription Agreement”), between the Company and the Investors. Pursuant to the Subscription Agreement, the Company issued to the Investors its Notes, scheduled to mature on January 11, 2008, in the aggregate principal amount of $265,957. In connection with the issuance of the Notes, the Company issued to the Investors five-year warrants (the “Investor Warrants”) to purchase up to 265,957 shares of the Company’s Common Stockat a per share exercise price of $1.77. In connection with its investment, the Investors also received an aggregate of 25,000 restricted shares of the Company’s Common Stock.

Under the terms of the Notes, the holder of the Note may declare the Note immediately due and payable upon the occurrence of any of the following events of default (each an “Event of Default”): (i) the Company fails to pay any installment of principal, interest or other sum due under the Note when due and such failure continues for a period of five (5) days after the due date, (ii) the Company breaches any material covenant or other term or condition of the Subscription Agreement or the Note in any material respect and such breach, if subject to cure, continues for a period of ten (10) business days after written notice to us from the Holder, (iii) any material representation or warranty made by the Company in the Note, in the Subscription Agreement, or in any agreement, statement or certificate given in writing pursuant hereto or in connection therewith shall be false or misleading in any material respect as of the date made and the Closing Date, (iv) the Company makes an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed, (v) any money judgment, writ or similar final process shall be entered or filed against the Company or any of its property or other assets for more than $150,000, and shall remain unvacated, unbonded or unstayed for a period of forty-five (45) days, (vi) bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law, or the issuance of any notice in relation to such event, for the relief of debtors shall be instituted by or against the Company and are not dismissed within 45 days of initiation, or (vii) a default by the Company of a material term, covenant, warranty or undertaking of any other agreement to which the Company and Holders are parties, or the occurrence of a material event of default under any such other agreement which is not cured after any required notice and/or cure period.

The Investor Warrants contain a cashless exercise provision. The warrants also provide for protection against dilution in the event that we issue shares prior to exercise of the warrant, so that upon exercise the investor receives the same proportion shares in relation to the then outstanding shares of the Company that he would have received when originally issued the warrants. If any subsequent transaction has a lower per share purchase price or conversion price or a lower per share warrant or option price then, as applicable, we must issue to the Investor that number of additional shares of Common Stock so that the average per share purchase price of the shares of Common Stock issued to the Investor (of only the Common Stock or Warrant Shares still owned by the Investor) is equal to such other lower price per share and the Conversion Price and Warrant exercise price shall automatically be adjusted to such lower purchase or issue price.

Out of the gross proceeds received the Company paid a due diligence fee of $25,000 and other offering related fees and expenses totaling $2,500.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

We urge you to read the following discussion in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere herein.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Our prospects are subject to uncertainties and risks. In this Quarterly Report on Form 10-QSB, we make forward-looking statements in this Item 2 and elsewhere that also involve substantial uncertainties and risks. These forward-looking statements are based upon our current expectations, estimates and projections about our business and our industry, and reflect our beliefs and assumptions based upon information available to us at the date of this report. In some cases, you can identify these statements by words such as “if,” “may,” “might,” “will, “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” and other similar terms. These forward-looking statements include, among other things, projections of our future financial performance and our anticipated growth, descriptions of our strategies, our product and market development plans, the trends we anticipate in our business and the markets in which we operate, and the competitive nature and anticipated growth of those markets.

We caution readers that forward-looking statements are predictions based on our current expectations about future events. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Our actual results, performance or achievements could differ materially from those expressed or implied by the forward-looking statements as a result of a number of factors, including but not limited to the risks and uncertainties discussed in our other filings with the SEC, including the risk factors section of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 14, 2007. We undertake no obligation to revise or update any forward-looking statement for any reason.

OVERVIEW

IDO Security Inc. (the “Company,” “we,” “our,” or “us”) is engaged in the design, development and marketing of devices for the homeland security and loss prevention markets that are intended for use in security screening procedures to detect metallic objects concealed on or in footwear, ankles and feet through the use of electro-magnetic fields. These devices were designed specifically for applications in the security screening to complement the current methods for the detection of metallic items during security screenings and at security checkpoints in venues such as airports, prisons, schools, stadiums and other public locations and other venues requiring individual security screening. Our common stock trades on the OTC Bulletin Board under the symbol IDOI.

IDO Security Inc. (formerly knows as “The Medical Exchange Inc.”) was incorporated in the State of Nevada on January 23, 2004. On July 25, 2006, we, IDO Security Ltd. (“IDO Ltd.”) and IDO Ltd.’s Selling Shareholders entered into a Securities Purchase Agreement (the “Purchase Agreement”) pursuant to which we purchased, in March 2007, all of the issued and outstanding share capital of IDO Ltd. (the “Acquisition Transaction”). Following the Acquisition Transaction, IDO Ltd. became a wholly-owned subsidiary of the Company and Med Ex adopted the business of IDO Ltd. In June 2007, the Company changed its name to “IDO Security Inc.”

We have designed and developed a security screening device containing proprietary technology known as the MagShoe. The MagShoe creates specific electro-magnetic fields that can intelligently detect the presence of metallic objects inside a person’s footwear, as well as next to or above the ankles, while ignoring those metal objects that are normally found inside shoes. The proprietary software included in the Magshoe provides for the collation and delivery of the screening data to the operator for immediate analysis. The Magshoe obviates the need to remove the footwear being inspected.

A patent has been issued to us by the United States Patent and Trademark Office in November 2005 covering various aspects of the unique technology contained in the Magshoe and there is one patent application pending in Israel. In January 2006, the Magshoe was approved for use by the Department for Transport in the United Kingdom, after fields trials were conducted for the Home Office’s Police Scientific Development Branch. In addition, we have been certified by the International Organization for Standardization (“ISO”) under ISO 9001:2000 compliance for the design, development and manufacture of electronic, electro-optic and electro-mechanical systems.

We believe that the market for security and inspection products will continue to be positively impacted by the threat of terrorist activities and by new government regulations and appropriations for security and inspection products and procedures. We anticipate that the promulgation of new governmental regulation and standards will establish performance baselines against which we will be able to direct certain of our continued research and development spending and market our products to customers, worldwide. In addition, we believe that the increasing awareness on security, in general, will bring to an increasing awareness on available products and methods, such ours, for anti-crime and loss prevention fileds.

Following the Acquisition Transaction, we reorganized the management and operational activities of the Company. Our acting Chief Executive Officer was appointed President. We retained a Chief Operating Officer for IDO Ltd., a Manager of Business Development for the Company as well as other personnel and outside consultants. We have been seeking to expand our contact base and are aggressively seeking collaborative arrangements worldwide for our Magshoe product. We will need to raise additional working capital to accelerate our sales, marketing, manufacturing and customer service activities, as well as to repay approximately $3.3 million in short-term loans that will become due and payable in August 2007. We presently do not have the capital resources to undertake any of these steps or to repay these debts. We have a non-binding financing proposal from several entities that is subject to the completion of due diligence and no assurance can be provided that we will be able to raise funds on commercially acceptable terms (or at all)

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of these financial statements required management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates it uses to prepare the consolidated financial statements and bases its estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.

We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

Our significant accounting policies are summarized in Note 2 of Notes to Condensed Consolidated Financial Statements. While all these significant accounting policies impact its financial condition and results of operations, the Company views certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the presented in this report.

Plan of Operations

We are aggressively pursuing our business plan with respect to product development and enhancement and field testing, as well as initial marketing efforts. Following the Acquisition Transaction, we had seven employees. Through June 30, 2008, we intend to expand our internal management and administrative capacities. We expect to continue making substantial investment in equipment and to acquire inventory to facilitate the expansion of pilots and to prepare for commercialization.

All references to financial results prior to the date of the Acquisition Transaction (e.g., March 8, 2007) shall mean and refer to the financial results of IDO Ltd. All references to results following the date of the Acquisition Transaction shall mean and refer to the financial results of the IDO Security Inc. and its consolidated subsidiary, IDO Ltd.

Revenues - No revenues were recorded for the nine or three months ended September 30, 2007 or during the corresponding periods in 2006.

Research and development - Research and development expense consist primarily of expenses incurred in designing, developing and field testing our products. These expenses consist primarily of salaries and related expenses for personnel, contract design and testing services, supplies used and consulting and license fees paid to third parties. We incurred research and development expenses in the amount of $196,094 and $96,933 for, respectively, the nine and three months ended September 30, 2007. For the corresponding periods in 2006, no research and development expenses were incurred.

Selling, general and administrative expenses - Selling, general and administrative expenses primarily consist of salaries and other related costs for personnel in executive and other administrative functions. Other significant costs include professional fees for legal, accounting and other services. We incurred selling, general and administrative expenses of $601,489 and $289,180 for, respectively, the nine and three months ended September 30, 2007 as compared to $53,118 and $3,300 for the corresponding periods in 2006. The increase in selling, general and administrative expenses is principally attributable to the intensified activities following the Acquisition Transaction.

Stock Based Compensation . In June through September 2007, we granted stock options to employees and consultants valued at $5.66 million. The value of these options are being amortized over the vesting periods of each grant. Stock based compensation totaled $2,567,829 and 1,111,752 for the nine and three months ended September 30, 2007, respectively. Stock-based compensation is non-cash and, therefore, has no impact on cash flow or liquidity.

Interest expense - Interest expense for the nine and three months ended September 30, 2007 was $414,798 and $213,732, respectively. No interest was incurred in the corresponding periods in 2006. For the nine months ended September 30, 2007, interest included $381,260 related to the convertible promissory notes and $33,538 to related parties . For the three months ended September 30, 2007, interest included $195,198 related to the convertible promissory notes and $18,534 to related parties .

Amortization - During the nine and three months ended September 30, 2007, we recorded amortization of $5,466,314 and $3,403,487, respectively. Amortization related to the debt discount, beneficial conversion feature and deferred finance costs incurred in connection with the placement of our convertible promissory notes which were issued in February, March and April 2007. These costs are amortized to the date of maturity of the debt unless converted earlier.

LIQUIDITY AND CAPITAL RESOURCES

To date we have financed our operations primarily from the sale of our securities.

As of September 30, 2007, we had a cash balance of $57,139.

Between February 28 and April 18, 2007, we raised $3,000,000 from the private placement to certain institutional and private investors (collectively, the “Investors”) of our 120 day Secured Convertible Notes (collectively, the “Notes”). The loans were advanced pursuant to a Subscription Agreement, dated as of February 28, 2007 (the “Subscription Agreement”). Pursuant to the Subscription Agreement, the Company issued to the Investors its Notes in the aggregate principal amount of $3,240,000, reflecting an original issue discount on the principal amount of the loans of 8% over the 120 day loan period. Notes in the aggregate principal amount of $1,134,000, $1,350,000 and $756,000 were or are scheduled to mature, respectively, on June 28, 2007, July 29, 2007 and August 16, 2007. These investors have been granted a lien on all of our assets, including our intellectual property, to secure the repayment of amounts owing under the Notes and the Subscription Agreement. The maturity dates of Notes totaling $2,484,000 that were scheduled to mature on June 28, 2007 and July 29, 2007 were extended to August 31, 2007. These Notes, as well as Notes in the principal amount of $756,000 that were scheduled to mature on August 16, 2007, were extended to November 29, 2007. Following these extensions, the aggregate principal amount of $3,499,360 payable in respect of the Notes is due and payable by November 29, 2007.

On October 11, 2007, we raised gross proceeds of $250,000 from the private placement to institutional investors (the “October 07 Investors”) of its 90 day Promissory Notes (collectively, the “Notes”, each a “Note”). The loan was advanced pursuant to a Subscription Agreement, dated as of October 11, 2007 (the “Subscription Agreement”), between the Company and the Investors. Pursuant to the Subscription Agreement, the Company issued to the October 07 Investors its Notes, scheduled to mature on January 11, 2008, in the aggregate principal amount of $265,957.

Cash used in operating activities was $770,550. The decrease in cash was primarily attributable to funding the loss for the period.

Cash used in investing activities was $950,171 and was primarily attributable to the consummation of the Acquisition Transaction.

Cash provided by financing activities was $1,786,154. The Company received proceeds of $3 million from the issuance of the Notes, $36,475 from the collections of subscriptions receivable and proceeds from short-term debt incurred by IDO Ltd. of $47,738. In connection with the issuance of the Notes, the Company incurred financing costs of $325,000. In addition, the Company repaid short-term debt incurred by IDO Ltd. totaling $985,794.

We will need to raise additional funds to be able to satisfy our cash requirements over the next twelve months, including satisfying the repayment obligations on the Notes that are scheduled to mature in November 2007 and January 2008. Product development, corporate operations and marketing expenses will continue to require additional capital. Our current revenue from operations is insufficient to cover our current operating expenses and projected expansion plans which include the repayment of the Notes. We therefore are aggressively seeking additional financing through the sale of our equity and/or debt securities. No assurance can be provided that additional capital will be available to us on commercially acceptable or at all. Our auditors included a "going concern" qualification in their auditors' report for the six month period ended December 31, 2006. Such "going concern" qualification may make it more difficult for us to raise funds when needed. Additional equity financings may be dilutive to holders of our Common Stock.

ITEM 3.

CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including our acting Chief Executive Officer (and Principal Financial and Accounting Officer), to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-14(c).

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with participation of management, including our acting Chief Executive Officer (and Principal Financial and Accounting Officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our acting Chief Executive Officer (and Principal Financial and Accounting Officer)concluded that our disclosure controls and procedures were effective.

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING. During the quarter ended September 30, 2007, there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, these controls.

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

None.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5.

OTHER INFORMATION.

(i) On September 4, 2007, John P. Mitola was appointed to the Company's Board of Directors. Since August 1, 2006, Mr. Mitola has been affiliated with Belair Capital Partners Inc. and Kingsdale Capital International, financial advisory and consulting firms. From January 2000 through February, 2006, Mr. Mitola, was the Chief Executive Officer of Lime Energy Co. (formerly “Electric City Corp.”), a publicly traded company. From August 1993 until December 1999, Mr. Mitola was with Unicom Thermal Technologies (now Exelon Thermal Technologies), Unicom (now Exelon) Corporation’s largest (at that time) unregulated subsidiary at the time, serving as vice president and general manager prior to his departure for Electric City Corp. Mr. Mitola led the growth of Unicom Thermal through the development of Unicom Thermal’s Northwind ™ ice technology and through thermal energy joint ventures between Unicom Thermal and several leading electric utility companies across North America. Prior to his appointment at Unicom Thermal, Mr. Mitola was director of business development for Commonwealth Edison Company, the local electric utility serving Chicago, Illinois and the northern Illinois region. Since April 2003, Mr. Mitola has also served as the chairman of the Illinois State Toll Highway Authority, appointed by the Governor of Illinois.

In connection with his appointment, Mr. Mitola was awarded options to purchase up to 100,000 shares of the Company’s Common Stock at a per share exercise price of $1.00, of which options for 25,000 shares are scheduled at the end of each quarter, beginning September 30, 2007.

(ii) On September 2, 2007, Mr. Jorge Wolf, who since May 15, 2007 has served the Manager of Business Development for each of the Company and IDO Ltd., was appointed as Chief Executive Officer of IDO Ltd.

Nevada		N/A
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

PART I -- FINANCIAL INFORMATION
		PAGE
Forward Looking Statements		ii

Item 1	Financial Statements	1
	Condensed Consolidated Balance Sheets September 30, 2007 (Unaudited) and December 31, 2006 (Audited)	1
	Unaudited Condensed Consolidated Statements of Operations for the nine and three months ended September 30, 2007 and 2006	2
	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2007 and 2006	3
	Notes to Unaudited Condensed Consolidated Financial Statements	4

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	11

Item 3	Controls and Procedures	13

PART II -- OTHER INFORMATION

Item 1	Legal Proceedings	14
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3	Defaults upon Senior Securities	14
Item 4	Submission of Matters to a Vote of Security Holders	14
Item 5	Other Information	14
Item 6	Exhibits	14

SIGNATURES		15

IDO SECURITY INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

	September			December 31,
	2007			2006
ASSETS	(unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	57,139		$	7,484
Inventory		192,529			-
Prepaid expenses and other current assets		50,608			-

Total current assets		300,276			7,484

Property and equipment, net		29,415			-
Patents, net		1,130,000			-
Goodwill		755,002			-
Deferred acquisition costs		-			55,550

Total assets	$	2,214,693		$	63,034

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	195,486		$	101,548
Convertible promissory notes (net of discount of $1,825,761)		1,555,208			-
Loan payable, related party		44,826			26,896

Total current liabilities		1,795,520			128,444

NON-CURRENT LIABILITIES
Accrued severance pay		157,150			-

Total liabilities		1,952,670			128,444

STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock
20,000,000 shares authorized; none outstanding
Common stock, $.001 par value;
50,000,000 shares authorized; 34,336,250 and 30,600,000
issued and outstanding, respectively		34,336			30,600
Additional paid-in capital		9,655,499			124,331
Stock subscription receivable		(25	)		(36,500	)
Accumulated other comprehensive loss		(331	)		(331	)
Accumulated deficit		(9,427,456	)		(183,510	)

Total stockholders' equity (deficit)		262,023			(65,410	)

Total liabilities and stockholders' equity (deficit)	$	2,214,693		$	63,034


See Notes to Condensed Consolidated Financial Statements.

IDO SECURITY INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Nine Months						Three Months
	Ended						Ended
	September 30,						September 30,
	2007			2006			2007			2006
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)


Revenues	$	-		$	-		$	-		$	-

Operating expenses
Research and development costs		196,094			-			96,933			-
Selling, general and administrative expenses		601,489			53,118			289,180			3,300
Stock based compensation		2,567,829			-			1,111,752			-

Total operating expenses		3,365,412			53,118			1,497,865			3,300

Loss from operations		(3,365,412	)		(53,118	)		(1,497,865	)		(3,300	)

Interest expense (including related parties
of $33,538, $0, $18,534 and $0)		(414,798	)		-			(213,732	)		-
Interest income		2,578			-			1,041			-
Amortization of debt discount		(4,905,467	)		-			(3,262,788	)		-
Amortization of beneficial conversion feature		(448,264	)		-			(120,298	)		-
Amortization of deferred finance costs		(112,583	)		-			(20,401	)		-

Net loss		(9,243,946	)		(53,118	)		(5,114,043	)		(3,300	)

Other comprehensive income
Foreign currency translation adjustment		-			171			-			-

Comprehensive loss for the period	$	(9,243,946	)	$	(52,947	)	$	(5,114,043	)	$	(3,300	)

Basic and diluted loss per share:	$	(0.28	)	$	0.00		$	(0.15	)	$	0.00

Weighted average number of shares outstanding
Basic and diluted		32,588,493			16,732,721			34,187,935			30,450,000



See Notes to Condensed Consolidated Financial Statements.

IDO SECURITY INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months
	Ended
	September 30,
	2007			2006
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(9,243,946	)	$	(53,118	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		186,128			-
Amortization of note discount		4,905,467			-
Amortization of beneficial conversion feature of convertible debt		448,264			-
Accretion of interest on notes payable		380,969			-
Stock based compensation		2,567,829			-
Increase in net liability for severance pay		6,347			-
Increase (decrease) in cash attributable to changes in assets and liabilities
Inventory		(110	)		-
Prepaid expenses and other current assets		(37,764	)		-
Accounts payable		(579	)		-
Accrued expenses and other current liabilities		16,845			9,939

Net cash used in operating activities		(770,550	)		(43,179	)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of IDO Security Ltd., net of cash acquired of $19,974		(950,171	)		-
Deferred acquisition costs		-			(9,000	)
Purchases of property and equipment		(15,778	)		-

Net cash used in investing activities		(965,949	)		(9,000	)

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares		-			80,375
Stock subscription receivable		36,475			(36,500	)
Proceeds from issuance of secured convertible notes		3,000,000			-
Payments of deferred finance costs		(325,000	)		-
Proceeds from related party loans		12,735			4,149
Proceeds from short-term debt		47,738			4,371
Repayment of short-term debt		(985,794	)		-

Net cash provided by financing activities		1,786,154			52,395

Effect of foreign currency translation on cash		-			171

INCREASE IN CASH AND CASH EQUIVALENTS		49,655			387

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		7,484			-

CASH AND CASH EQUIVALENTS - END OF PERIOD	$	57,139		$	387

Supplemental disclosures of cash flow information:
Cash paid for interest	$	-		$	-

Non-cash activities
Issuance of common stock relating to convertible promissory notes	$	1,261,435		$	-


See Notes to Condensed Consolidated Financial Statements.

Exhibit Number	Description





31	Certification Pursuant to Rule 13a-14a of the Securities Exchange Act of 1934, as amended
32	Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

	DATE: November 19, 2007
		IDO SECURITY INC.

		/s/ MICHAEL GOLDBERG
		MICHAEL GOLDBERG
		ACTING CHIEF EXECUTIVE OFFICER (PRINCIPAL
		EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL AND
		ACCOUNTING OFFICER) AND PRESIDENT